Direct Line Group Trading Update

Direct Line Insurance Group plc (“the Group”) is today providing an update on current trading and outlook.

Penny James, Chief Executive Officer, said:

“Today’s trading update follows a period of heightened volatility across the UK motor insurance market, in which we have seen claims inflation in motor in the first half of 2022 spike above the levels assumed in our pricing. As a result, we are revising our combined operating ratio target range for 2022 to 96-98%.

We have already taken actions including increasing prices and deploying new pricing capability to restore margins, which mean we expect our 2023 combined operating ratio will improve to around 95% and we reiterate our medium-term target range of 93-95%.

This, combined with our diversified business model, our strong balance sheet and our continuing actions to further improve resilience, gives us confidence in the sustainability of our regular dividends for this year and as we look ahead.”

Current trading

The motor insurance market experienced significant levels of severity inflation in H1, primarily resulting from higher used car prices, and amplified by higher third party claims costs, longer repair times and inflation in the cost of car parts. Market premium inflation has continued to lag the increases in claims inflation.

Whilst the Group has been pricing claims inflation over the last 12 months, experience has been in excess of the levels assumed. The Group now estimates overall motor claims severity inflation for 2022 of around 10%.

As a result, the H1 2022 current year motor loss ratio is now expected to be in the region of 86%. Due to conservative reserving during 2021, the Group’s prior year reserve releases in the first half remain in line with expectations.

The Group’s other business units are performing largely in line with expectations, demonstrating the benefit of the Group’s diversified business model. Overall, the Group expects a combined operating ratio for the first half of 2022 of around 96.5%, normalised for weather, and gross written premium of approximately £1,520 million.

2022 outlook

The Group has taken action in the second quarter to restore margins through increased prices to reflect higher than expected claims inflation. In addition, the Group has recently launched an updated motor risk pricing model which it believes materially improves risk selection.

Given the higher current year loss ratio, the Group now expects the full year 2022 combined operating ratio to be in the range of 96% to 98%, normalised for weather.


The Group continues to target significant cost reductions across the business. In 2022, the Group expects to reduce operating expenses in absolute terms, despite market wide inflation, to between £690 million and £700 million. For 2023, the Group is targeting operating expenses in the region of £670 million. Given the increase in amortisation and market levies over the period this represents a £76 million (15%) reduction in controllable expenses from 2021 to 2023.

The Group continues to target a 20% expense ratio, but given the reduction in motor market average premiums since the target was set, predominantly driven by structurally lower claims frequency, it is now unlikely this will be achieved in 2023.

2023 combined operating ratio outlook and over the medium term

Following the trading actions already taken and continued strong cost control referred to above, the Group expects a combined operating ratio of around 95% for 2023 (normalised for weather) and to return to a target range of 93% to 95% over the medium term.

Investment return outlook

Recent rises in interest rates have increased the Group’s yield outlook. Whilst the Group still expects 2022 net investment income yield to be around 1.7%, based on current reinvestment rates and maturity profile it expects this to increase to around 2.2% in 2023.

Dividend and capital management

The Group believes its balance sheet and outlook for capital generation in the medium term remains strong due to pricing and operational improvements arising from the Group’s transformation programme.

In the first half of 2022, the solvency capital ratio has reduced by an estimated 7 percentage points due to the mark to market effect of widening credit spreads on the Group’s investment portfolio, albeit this is expected to pull to par over time. Based on this and other movements in the first half of the year, the Group estimates a solvency capital ratio at 30 June of around 150% assuming an unchanged interim dividend of 7.6 pence per share.

The Board understands the importance of the regular dividend to shareholders and notes that the current solvency ratio is comfortably within the risk appetite range of 140% to 180%. The Group is confident in the sustainability of its regular dividends and is continuing to take action to both improve returns and further increase resilience given macro-economic uncertainty, including reducing credit exposure and, as previously disclosed, is considering the use of strategic reinsurance.

In the light of the current market environment, the Board has decided not to launch the second £50 million tranche of the £100 million share buyback programme announced earlier in the year.

The Group will publish its 2022 half year report on Tuesday 2 August.

The person responsible for arranging for the release of this announcement on behalf of the Company is Neil Manser, Chief Financial Officer.

For further information please contact:

Paul Smith Director of Investor Relations

Tel: +44 (0)7795 811 263

Will Sherlock Group Corporate Affairs and Sustainability Director

Tel: +44 (0)7786 836 562